Liability
Liability is the status of being responsible or obligated under the law. Persons and businesses can be subject to both civil (private) and criminal liability. Liability can be “joint and several” with each liable party individually responsible for the entire legal obligation; and “derivative” or “vicarious” acts involving other persons and businesses, such as when an agent acts on behalf of another or an employee acts on behalf of an employer.
Products liability refers to the liability of manufacturers and distributors when users of their products are harmed. Products liability may be based on negligence, or it may be “strict” (not based on negligence) as a matter of law. Liability for very hazardous activities is often based on strict liability principles, as are “no fault” workers’ compensation and auto-accident laws.
Limited liability concerns the restriction of liability by contract terms or by statutory or regulatory law. The most notable form of limited liability is that of stockholders whose liability cannot exceed the capital they have invested in an incorporated business.
Liabilities are represented by the various payables accounts found in the liabilities section on the top righthand side of a balance sheet. Accounts payable, notes payable, wages payable, interest payable, and bonds payable are examples of various forms of debt.
It is customary to group debts into current liabilities and long-term liabilities. Current liabilities are accruals that arise and must be satisfied within the current accounting period. Long-term liabilities are usually more formal debt instruments such as promissory notes and bonds, and they will not come due during the current account period. In fact, there may be several years before some longer-term liabilities reach their maturities.
The debt is owed to the firm’s creditors, and these lenders have a priority over the firm’s equity members (stockholders) in the event of liquidation or bankruptcy. For this reason the liabilities are always placed before the equity accounts on the balance sheet.
Liability
Liability is the status of being responsible or obligated under the law. Persons and businesses can be subject to both civil (private) and criminal liability. Liability can be “joint and several” with each liable party individually responsible for the entire legal obligation; and “derivative” or “vicarious” acts involving other persons and businesses, such as when an agent acts on behalf of another or an employee acts on behalf of an employer.
Products liability refers to the liability of manufacturers and distributors when users of their products are harmed. Products liability may be based on negligence, or it may be “strict” (not based on negligence) as a matter of law. Liability for very hazardous activities is often based on strict liability principles, as are “no fault” workers’ compensation and auto-accident laws.
Limited liability concerns the restriction of liability by contract terms or by statutory or regulatory law. The most notable form of limited liability is that of stockholders whose liability cannot exceed the capital they have invested in an incorporated business.
Liabilities are represented by the various payables accounts found in the liabilities section on the top righthand side of a balance sheet. Accounts payable, notes payable, wages payable, interest payable, and bonds payable are examples of various forms of debt.
It is customary to group debts into current liabilities and long-term liabilities. Current liabilities are accruals that arise and must be satisfied within the current accounting period. Long-term liabilities are usually more formal debt instruments such as promissory notes and bonds, and they will not come due during the current account period. In fact, there may be several years before some longer-term liabilities reach their maturities.
The debt is owed to the firm’s creditors, and these lenders have a priority over the firm’s equity members (stockholders) in the event of liquidation or bankruptcy. For this reason the liabilities are always placed before the equity accounts on the balance sheet.